ASC

ASC 405-944

Financial Services—Insurance

405 Liabilities

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In brief

IntermediateRecognitionIndustry-specificSubsequent measurement

ASC 405-944 tells insurance entities where liability accounting guidance lives and adds one specific rule for reinsurance contracts. Liabilities for claims costs and future policyholder benefits are in Subtopic 944-40, premium deficiencies in 944-60, and policyholder dividends in 944-50. The substantive rule here: a ceding entity that agrees to service the reinsured contracts without reasonable compensation must accrue a liability for estimated excess future servicing costs (405-944-25-1).

Key points (4)
  • The Subtopic is organized into a General Subsection and a Reinsurance Contracts Subsection, both addressing insurance entity liabilities (405-944-05-1).
  • Cross-references direct users elsewhere: claims costs and future policyholder benefits to Subtopic 944-40, premium deficiencies to 944-60, and dividends to policyholders to 944-50 (405-944-05-2).
  • Scope follows Section 944-10-15 (the Overall insurance Subtopic), and the Reinsurance Contracts Subsections apply only to reinsurance contracts, identified under 944-20-15 (405-944-15-1 through 15-3).
  • If a ceding entity agrees to service all related insurance contracts without reasonable compensation, it must accrue a liability for estimated excess future servicing costs under the reinsurance contract (405-944-25-1).

For students. The only operative rule in this Subtopic is the accrual of excess future servicing costs by a ceding entity that services reinsured contracts for less than reasonable compensation; everything else is a signpost to Subtopics 944-40, 944-50, and 944-60. A common mistake is looking here for measurement of claim liabilities or policyholder benefits, which are governed by 944-40.

reinsurance contractceding entityexcess future servicing costspolicyholder benefitspremium deficiencypolicyholder dividendsinsurance liabilities

Machine-generated study aid for ASC 405-944. Check the source paragraphs below.

405-944-00Status

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405-944-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Dividend to PolicyholdersAddedAccounting Standards Update No. 2014-0603/14/2014
944-405-05-1AmendedAccounting Standards Update No. 2016-1912/14/2016
944-405-05-2AmendedAccounting Standards Update No. 2014-0603/14/2014

405-944-05Overview and Background

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405-944-05-1
This Subtopic provides guidance to insurance entities on accounting for and financial reporting of liabilities. The guidance in this Subtopic is provided in the following two Subsections:
  1. a
    General
  2. b
    Reinsurance contracts.
405-944-05-2
For guidance on liabilities for claims costs and future policyholder benefits, see Subtopic 944-40. For guidance on liabilities related to premium deficiencies, see Subtopic 944-60. For guidance on liabilities for dividends to policyholders, see Subtopic 944-50.

Reinsurance Contracts

405-944-05-3
This Subtopic provides guidance to insurance entities on accounting for and financial reporting of liabilities related to reinsurance contracts.

405-944-15Scope and Scope Exceptions

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Overall Guidance

405-944-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 944-10-15.

Reinsurance Contracts

405-944-15-2
The Reinsurance Contracts Subsections of this Subtopic follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific instrument qualifications noted below.

Instruments

405-944-15-3
The guidance in the Reinsurance Contracts Subsections of this Subtopic applies only to reinsurance contracts. For guidance on identifying a reinsurance contract, see the Reinsurance Contracts Subsection of Section 944-20-15.

405-944-25Recognition

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Reinsurance Contracts

405-944-25-1
If a ceding entity has agreed to service all of the related insurance contracts without reasonable compensation, a liability shall be accrued for estimated excess future servicing costs under the reinsurance contract.

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